Clyde Prestowitz is the founder and president of the Economic Strategy Institute (ESI), where he has become one of the world's leading writers and strategists on globalization and competitiveness, and an influential advisor to the U.S. and other governments. He has also advised a number of global corporations such as Intel, FormFactor, and Fedex and serves on the advisory board of Indonesia's Center for International and Strategic Studies.

January 26, 2011 - 4:13 pm

President Obama deserves some credit for declaring the improvement of the United States’ global competitiveness the focal point of the last half of his term in office. Competitiveness underpins everything else — jobs, rising standards of living, budget surpluses in place of deficits, and the ability to project power globally. Without being economically competitive, the United States cannot be the United States. So a big nod to the president for finally focusing the American attention on the main game.

But that is as far as my praise can go. The substance of the State of the Union speech was a list of knee jerk conventional wisdom proposals that not only won’t make us more competitive but that are at odds with the budget austerity the president also proposed. Let’s start with the knee jerk proposals.

Right up front was innovation. The U.S., said Obama, must out-innovate other countries if it is to stay in the lead and create the new jobs needed to replace the old factory jobs the president suggested are gone forever. Okay, innovation for sure is a good thing. Nobody’s against it and it plays so well to the American self-image of being smarter, more entrepreneurial, more flexible, and more dynamic than anybody else. But has anyone noticed that we’ve been leading in innovation for the past thirty years and that has not prevented us from suffering an erosion of our industrial and technological leadership or from running up enormous trade deficits while suffering loss of jobs and stagnation of wages and living standards. This despite the fact that we have innovated with the deployment of the Internet, the evolution of start-ups like Google and Facebook, and the development of smash-hit new products like the iPad.

Of course, innovation is to be desired and promoted. But one of this century’s great innovators, former Intel CEO Andy Grove, pointed out in a recent article in Bloomberg Businessweek that innovation is not enough. I actually gave a copy of Grove’s ideas to the president, but it didn’t sound last night as if he had read them. In any case, Grove has a set of graphs showing that the United States continues to innovate pretty much at the pace it always has. What has changed, notes Grove, is the pace of moving to mass production and commercialization. We don’t do that much in the U.S. anymore because our companies take the innovation and move the production and commercialization offshore. Indeed, increasingly they are moving the innovation offshore as well — in part because once you stop producing and commercializing it becomes increasingly difficult to innovate.

Next was education. Good stuff that education. Just like innovation we need more of it and we need it to be better. No arguments about that here or anywhere else I guess. But just as with innovation, for most of the past thirty years we’ve had, on average, the world’s best educated work force. Certainly, companies aren’t moving their factories to China because its workers are on the whole better educated than American workers. The movement of U.S. production to offshore locations has taken place despite the generally superior educational level of the United States. And, even if we fix education, which we definitely should do, we won’t feel the effect for twenty years, by which time our competitive fate will have long ago been determined.

Infrastructure was next on the list and its renewal and modernization actually is a good, immediate idea. But that gets us to the big internal contradiction in the speech. Innovation, education, and especially infrastructure all cost money. But in the second half of the speech, the president said he was going to freeze government spending for five years on all non-entitlement expenditures. So he seemed to be offering with one hand while taking away with the other.

Completely unaddressed were the questions ironically raised just last week by announcements surrounding the visit of China’s President Hu Jintao to Washington. First, General Electric announced that it was forming a joint venture with China’s state owned Avic corporation to produce avionics products in China for China’s new commercial jet liner that will compete with Boeing jet liners. The avionics technology will be transferred to the joint venture from GE. Unsaid, but obvious was the fact that GE believed it had to transfer the technology to have a real shot at selling any avionics to China in the form of exports from the United States even though the United States has a comparative advantage in such exports. Then a few days later, the White House announced the GE Chairman Jeff Immelt had been appointed as President Obama’s chief outside economic adviser.

So I’m left wondering how we are supposed to be innovative when our top companies transfer important technologies to would-be foreign competitors and how we are supposed to deal with those foreign competitors when the president’s chief outside economic adviser is among the chief transferers.

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